Government spared further headache as health insurer secures funding

Regulated VHI appears a sure privatisation candidate

 

Bailouts are something of a national obsession in this country, so there will be some relief in Government circles this week that VHI has managed to raise enough private capital from Warren Buffett’s Berkshire Hathaway to avoid rattling a tin in front of Leinster House.

On Tuesday, the VHI finally secured its long overdue authorisation from the Central Bank of Ireland, after selling a €90 million subordinated bond to Berkshire, with which it already has a substantial reinsurance agreement.

The bond helps the VHI to push its capital reserves beyond €540 million, which will keep the regulators happy and taxpayers, thankfully, out of the picture in terms of its financing needs.

The week’s events surely represent the first steps for the VHI along the inevitable road to privatisation.

From tomorrow, when it becomes an insurer authorised by the Central Bank, the VHI’s hitherto special status in relation to its peers in general insurance, which are already tightly regulated by the bank, will disappear.

It previously played by a special set of rules. While its regulated competitors adhered to strict solvency and capital ratios, the VHI had no such obligations as a statutory body. Now, it must display the same financial discipline as its rivals.

If the company gets into difficulties in future, its recourse to the State will be severely limited by European competition and State aid rules.

Were the State to attempt to bail it out, its competitors would surely cry foul to Brussels.

If the VHI requires an injection of fresh capital in the future, its only bet is likely to be the private sector. If only to ensure the company’s long-term financial stability, the Government should prepare for its sale.

VHI chief executive John O’Dwyer hinted as much on Tuesday when he said the regulated company is now a “more valuable asset” for the State.

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